..a whole new game

By Richard W. O'Neill President, Housing Advisory Council, Ltd.

(c) apartment market determinants, both incomes and household formations, no longer seem to indicate the kind of swings that we have seen in the apartment market since the early '60s.

Probably the first indication we had that the housing industry had changed came in the recession of '74 and '75. While housing in the aggregate was a disaster, a major sector of the market barely reacted to the recession: private single-family starts in the aggregate, held up as though there were no recesslon. A1l of the disaster, in general, fell in multifamily and HUD (Dept. of Housing and Urban Development) programs.

Story at a Glance

Why the new housing industry is a whole new business comfortable assu mDtions of what the numbers mean may now be obsolete less government effect seen, more stable money supply, different demand patterns.

Well, what about HUD and the government? FI{A's proportion of unsubsidized total U.S. starts has been less than l0% from 1968 through the present, with the exception of one year, 197 1, when it was exactly lO%. In all the years prior to 1968, except for the first year of FHA's operations in 1935, FHA unsubsidized starts as a percentage of total U.S. starts were over lO% with the single exception of 1946.

The proportion of FHA subsidized starts as a proportion of U.S. total starts in 1976 was at its lowest level since those programs began tn 1962 with the single exception of 1963.

Again, overall statistics on private single-family starts over the last dozen or so years indicate that in the aggregate, if you took away ItUD programs, the total hardly fluctuated significantly during the recession of 1974 and 1975.

Forces creating mortgage money more as a commodity came into being in 1966. For the housing industry, 1966 marked a collapse equalling 1929.

Annual housing start rates don't show the stoppage but monthly figures do. By Septembet new housing construction had all but stopped. This crisis in housing created a sharp focus on the Congress, resulting in several new pieces of legislation, the most important being the Emergency Housing Act of 1970. This created the Government National Mortgage Corp. with all of its current powers and the Federal Home Loan Mortgage Corp. and the development of the GNMA futures market with the Chicago Board of Trade.

Money futures quoted as $100,000 contracts for GNMA bonds can be purchased daily through the Chicago Board of Trade as far out as 2l to 23 months. The prices at which trades are consummated are a function of anticipated interest rates, arrived at voluntarily by buyer and seller.

GNMA bonds trade freely in thc government bond resale market. These are in $25.000 denominations and current prices yield only 20 basis points more than equivalent term U.S. Treasury bonds. These two items, plus Farmers Home Administration, under the Federal Reserve's figures for mortgage pools or trusts (outstanding principal balances of mortgage backing securities insured or guaranteed by one of the three agencies) went from a total of $14 billion in 1972 to $55 billion in the first quarter of this year.

Mortgage documentations became standardized for FHA, VA and Conventional home loans through joint efforts among the industry, FNMA and FHLMC. FNMA holds bi-weekly

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